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08 November 2024 01h10
Source: Negócios

Let's talk about volatility

Let's talk about volatility

In the context of the Stock Exchange Game, volatility is a crucial aspect to be observed in the behavior of asset prices. But what exactly does this represent? Volatility refers to the degree to which asset prices vary or fluctuate over time. For investors, it can be seen in two ways: as an opportunity and as a risk. It is an opportunity because, in short-term operations, the asset needs to be volatile enough to generate gains; and it is a risk because volatility reflects uncertainty and can lead to significant losses.

 

 

But how to measure the volatility of an asset? Investors can simply watch daily price fluctuations to get a sense of how volatile an asset is. However, for more objective analysis, technical tools and indicators are recommended. Among the most used are the intuitive Bollinger Bands, which consist of a moving average of the price with envelopes that expand or contract as volatility increases or decreases, allowing the evolution of volatility over time to be assessed; and the "average true range” (ATR), which represents a line whose value varies according to the volatility of the asset and, when measured as a percentage of the quote, allows the volatility of different assets to be compared, even if their prices are quite different. Today, these indicators are available on trading platforms, such as the one used in Jogo da Bolsa.

 

 

It is important to highlight that volatility does not indicate the direction of price movements and should not be confused with similar concepts, such as "momentum”, which will be discussed on another occasion.

 

 

In addition to historical volatility, which analyzes past variations, there is another that will be convenient to distinguish. Implied volatility, derived from option prices and reflecting investors' expectations regarding the future volatility of the underlying assets. For this reason, implied volatility is seen as an indicator of market sentiment, with the VIX index - often called the fear index - being the best-known example.

 

 

MARCO ANTÓN IO OLIVEIRA DIRECTOR OF CALDIRÃO DE BOLSA